Supreme Court Reinstates Arbitration Award; Reverses Chancery

Issue Presented: Whether the standard of “manifest disregard of the law” was met such that an arbitration award should be vacated? Answer: Not in this case. Thus, a rare reversal of the Court of Chancery by this en banc panel of the Delaware Supreme Court, reinstated the arbitration award that Chancery had vacated.

Highlights

This succinct and compact opinion from Delaware’s high court reasoned that the arbitrator, in this post-closing purchase price adjustment dispute, interpreted the relevant contract provisions in a manner that may have been wrong, but it “was not without a basis in the contract and the parties’ submissions.” Therefore, under the “manifest disregard” standard, the award was not subject to vacatur.

The court observed that the review of an arbitration award is “one of the narrowest standards of judicial review in all of American jurisprudence.” See fn. 15. The court explained that: “As long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced that he committed serious error does not suffice to overturn his decision.” See fn. 23.

The Delaware Arbitration Act at Section 5714 tracks the Federal Arbitration Act at Section 10(a)(4), and the Delaware courts often follow the federal cases construing the similar provision. The high threshold was not met in this case because the court found that there was a difference in interpretation of the contract as opposed to a refusal to apply a known principle.